Introduction, Privileges, and Importance to Micro Finance Company Registration
To provide the loan facility in urban and rural areas, the Government of India has introduced the concept of microfinance institutions. Microfinance Company has gained lots of popularity because it is helpful for those people who require small loans for their business, constructing houses, getting better healthcare facilities, etc.
Through these microfinance companies, the people are expanding their present opportunities. Also, women, unemployed people, and people with disabilities can benefit from these microfinance institutes.
Introduction to Micro Finance Companies – Microfinance Companies also known as MFCs provide credit services to underprivileged sections of society who don’t have access to mainstream businesses. It works similarly to the NBFC but provides significantly lower credit than the NBFC. Mostly, microfinance companies provide credit in the bandwidth of Rs. 10,000 to Rs. 20,000 to a person who wants to start a business.
It can give loans at inexpensive rates directed by the RBI and central government. They are a big support to rural and agricultural development plus income and employment creation.
Anyone who wants to register a Microfinance company requires to register a company first under the Companies Act, 2013. Once the company is registered and you have received certificates of incorporation under the Companies Act, 2013. You are required to open a bank account in the name of the company and deposit the amount i.e.
Rs .2- 5cores as a fixed deposit in the account.
After depositing the amount of fixed deposit you are required to create a proper application to RBI in the directed format for NBFC – MFI Registration, along with all the detailed documents. The application will be filed online and hard copies of all documents will be presented to the regional office of RBI. After getting the application and all the essential documents the RBI will handle the due application. If the bank is convinced with the application and the documents, it will pass on the Certificates of the starting business to the Microfinance company.
For Microfinance Institutions in India, RBI has formed a policy structure to render assured legitimacy. Here are the following privileges of Microfinance company registration –
- It benefits in fostering self-reliance and entrepreneurship – Microfinance, facilitated by proper registration, becomes a catalyst for fostering self-reliance and entrepreneurship within communities. By providing financial services such as microloans, MFIs empower individuals to start or expand small businesses. This, in turn, contributes to local economic development, creates employment opportunities, and enhances the overall entrepreneurial spirit within the community.
- Constant and smooth access to funding – Microfinance Company Registration opens the doors to a constant and smooth flow of funding. Registered MFIs are more likely to attract investment from various sources, including government programs, international organizations, and impact investors. This access to funding is crucial for maintaining and expanding microfinance operations, reaching more beneficiaries, and sustaining long-term financial inclusion initiatives.
- High-grade overall loan repayment rate in correlation to traditional banks – One of the considered benefits associated with microfinance, especially when backed by proper registration, is the high overall loan repayment rate compared to traditional banks. This can be attributed to the close-knit nature of microfinance operations, where there is often a strong sense of community and trust. The personal relationships established between MFIs and borrowers contribute to a more reliable repayment system, positively impacting the institution’s financial sustainability.
- It assists in increasing the financial condition by reaching the credit requirements of needy people by providing various types of loans contributing important economic profits even if income levels continue to be the same. It opens avenues for them to pursue their financial goals, whether it’s starting a small business or meeting essential needs.
- Many loan seekers in India do not qualify for conventional loan products due to lack of eligibility, credit history, and other reasons. Microfinance is a way for them to access credit without collateral and fulfill their financial goals.
- The privileges it offers, from fostering entrepreneurship to providing inclusive access to credit, position microfinance institutions as crucial players in the journey towards financial inclusion and empowerment. Through these privileges, registered MFIs contribute significantly to the economic well-being of individuals and communities, breaking down barriers that may hinder their path to financial prosperity.
The primary objective of microfinance is to provide finance to small entrepreneurs to expand their businesses and eventually attain self-sustainability. Other common objectives include boosting small businesses, decreasing unemployment, promoting economic development, etc. Some institutions also provide microfinance to position their customers to lead better lifestyles.
Under this funding option, borrowers can access credit with simpler eligibility conditions and use them to cover various personal or professional expenses. When it comes to repayment, they can choose a tenure with affordable EMIs to repay the loan without any financial stress.
Access to microfinance without any collateral requirement helps people obtain loans without pledging any asset as security. Realizing the importance of microfinance, eligible applicants can enjoy the benefits with hassle-free procedures and minimal paperwork, enabling them to gain self-dependence quickly. In urgent financial requirements, these funding options are excellent ways to overcome the challenges.
These loans help meet financial requirements and promote self-reliance and entrepreneurship. Eventually, it helps the nation develop and add value to the economy by supporting the SME sector and reducing unemployment. When borrowers use these loans to fulfill their goals, they qualify for traditional loans for their future requirements. These loans allow individuals to borrow money without putting their assets at risk or exhausting their savings.
Microfinance is a type of financial service that low-income groups and individuals ineligible for conventional financing options can obtain to satisfy their needs. Apart from lending smaller amounts to borrowers with easy eligibility conditions, many financial institutions also offer micro-savings accounts to benefit the account holders. The goal is to make impoverished people financially self-sufficient. Apart from SME loans, borrowers can also obtain instant Personal Loans to fulfill their personal needs like education, home renovation, medical emergency, vacation, or wedding.
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